A Bad Apple in the CSR Barrel?

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There have been a lot of reports about Apple’s iPod facilities in China in recent weeks, following a damning article about conditions there in a UK paper. Now that the dust has settled, the case highlights some interesting issues for those manufacturing in China.

The BBC reports as follows:

    “Apple is investigating a newspaper report that staff in some of its Chinese iPod factories work long hours for low pay and in “slave” conditions…The article in the Mail on Sunday alleged that workers received as little as £27 a month, doing 15-hour shifts making the iconic mp3 player….Employees at the factory lived in dormitories housing 100 people and outsiders were banned, the paper said.”

Apple’s response to the accusations was that the company “is committed to ensuring that working conditions in our supply chain are safe, workers are treated with respect and dignity, and manufacturing processes are environmentally responsible”, and that they were investigating the claims.

That the workers are paid little money and live in relatively unattractive conditions is not a big surprise (though the quoted wage seems low, even by comparison to another iPod facility in the report, and may not take into account the value of lodging and other benefits etc.), but in any event all these things are relative. The outrage of a suburban Mail on Sunday reader may be based on a less-than-full understanding of the context, and lack of awareness that the workers need jobs, even low-paid ones, and may be quite happy to be put up in a dormitory on the factory site (nothing unusual about that).

While these are the conditions in an “audited” foreign firm, many local firms operate with fewer controls – though this will have to change as major players seek to become globally competitive. A WorldWatch Institute report states:

    “Regrettably, Chinese companies have scored poorly on [CSR], focusing almost exclusively on profit maximization. Occupational accidents, food-poisoning incidents, and industrial pollution events occur frequently. As businesses make the transition from a planned economy to a market-oriented economy, social responsibility needs to become an essential element of Chinese corporate strategy.”

    “Many multinational companies that operate in China, including IBM, BP, Ford Motor Company, and HP, have begun to take social and environmental responsibilities seriously. In contrast, in 2004 only 11 Chinese companies filed reports disclosing their environmental and social performance, often the first step towards increasing responsibility.”

In one initiative to improve CSR in China, a Chinese Association For Corporate Social Responsibility (CACSR) is being launched in August. Founding members are reported by Xinhua to include “multinationals such as Nokia, IBM and CISCO, and Chinese companies like the China Pingan Insurance Company, the TCL Corporation, and the China Merchants Bank”. It will be interesting to see how far the organisation develops.

Clearly Apple, like so many others, is in China because it allows them to make products cheaply. It is also using a number of sub-contractors (such as Foxconn from Taiwan). The key questions for them are how far they can effectively audit and monitor their suppliers, and how they can protect their brand value while making profits – and delivering affordable products to those same Mail on Sunday readers.

On the reputational issue, Image Thief , refers to an article from CSR Asia, and also notes how times have changed for companies that suffer from bad press:

    “It took five years for Nike to take Jeff Ballinger’s claims about poor workplace conditions in Indonesia seriously. It took five days for the Apple iPod story to swamp techie blogs.”

While some of the reported statistics (and the general quality of the research) are questioned, a few interesting questions emerge including:

    • What are the real wages and benefits being paid, and do they met the local area’s minimum wage criteria?

    • Were working hour rules broken? (It seems so, from at least one report).

    • What is the policy towards 16-18 year-old workers? 16 is the legal age, but under-18s are a special category that are avoided by many MNCs.

Whatever the answers to these questions, it seems that meeting minimum employment standards may no longer be good enough for an international market leader with a valuable brand. In the age of instant information and consumer action, it may not be enough for any foreign manufacturers in China – especially ones that say they are committed to the long-term development of the country and their workers.

To avoid the sort of problems faced by Apple, active steps can be taken. Detailed due diligence is a must when outsourcing, and most companies now use the services of accountants, lawyers, (and consultants like us) to check out operations and financial reports. But it is also increasingly important to cover employment, social, environmental and other forms of due diligence to ensure legal compliance (if not best practice), and to protect hard-won brand equity. Not to mention workers and the environment!

China Business Services can assist in addressing CSR issues in China. Please contact us to discuss your requirements.

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3 Responses to “A Bad Apple in the CSR Barrel?”

  1. chinalawblog Says:

    This points out yet another advantage to skipping the contract manufacturer and doing it directly. I have heard Apple is now exploring that angle.

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